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Exam 02 - ECON 2301-05 - Wednesday, November 3
Multiple Choice
Identify the choice that best completes the statement or answers the question.
1. The price of a good that prevails in a world market is called the
a. absolute price.
b. comparative price.
c. relative price.
d. world price.
2. If an economy used gold as money, its money would be
a. fiat money, but not commodity money.
b. both fiat and commodity money.
c. commodity money, but not fiat money.
d. functioning as a store of value and as a unit of account, but not as a medium of exchange.
3. When a tax is levied on a good,
a. neither buyers nor sellers are made worse off.
b. only buyers are made worse off.
c. both buyers and sellers are made worse off.
d. only sellers are made worse off.
Figure 1
Suppose that the government imposes a tax of P3 - P1.
4. Refer to Figure 1. After the tax is levied, consumer surplus is represented by area
a. A+B+C.
b. F.
c. A.
d. D+H+F.
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5. Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10 units
of goods per hour.
a. Waldo’s productivity and output are greater than Emerson’s.
b. Emerson’s productivity and output are greater than Waldo’s.
c. Emerson’s productivity is greater than Waldo’s but his output is less.
d. Waldo’s productivity is greater than Emerson’s but his output is less.
6. M1 includes
a. demand deposits.
b. travelers' checks.
c. currency.
d. All of the above are correct.
7. The amount of deadweight loss that results from a tax of a given size is determined by
a. the ratio of the tax per unit to the effective price received by sellers.
b. the number of buyers in the market relative to the number of sellers.
c. the price elasticities of demand and supply.
d. whether the tax is levied on buyers or sellers.
8. Which of the following is not correct?
a. Most economists agree that eliminating unemployment insurance would increase the
nation’s overall level of well-being.
b. The unemployment rate is an imperfect measure of a nation’s overall level of economic
well-being.
c. Other things the same, countries that offer more generous and longer-lasting
unemployment insurance benefits are likely to have higher unemployment rates.
d. Most job search in the U.S. economy takes place without intervention by the
government.
9. The consumer price index tries to gauge how much incomes must rise to maintain
a. the highest standard of living possible.
b. a decreasing standard of living.
c. a constant standard of living.
d. an increasing standard of living.
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Figure 2. The figure applies to the nation of Wales and the good is cheese.
10. Refer to Figure 2. With trade, Wales
a. imports Q2 - Q0 units of cheese.
b. exports Q2 - Q0 units of cheese.
c. exports Q2 - Q1 units of cheese.
d. imports Q2 - Q1 units of cheese.
11. Jouke is on a temporary layoff from his factory job. The Bureau of Labor Statistics counts Jouke as
a. unemployed and not in the labor force.
b. employed and not in the labor force.
c. unemployed and in the labor force.
d. employed and in the labor force.
12. Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the
consumer price index for this economy for two or more consecutive years, we assume that
a. the number of apples bought by the typical consumer is equal to the number of pears
bought by the typical consumer in each year.
b. neither the number of apples nor the number of pears bought by the typical consumer
changes from year to year.
c. the percentage change in the price of apples is equal to the percentage change in the price
of pears from year to year.
d. neither the price of apples nor the price of pears changes from year to year.
13. If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is
a. -1.5 percent.
b. -6.5 percent.
c. 6.5 percent.
d. 1.5 percent.
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14. The Bureau of Labor Statistics produces data on
a. types of employment.
b. length of the average workweek.
c. unemployment.
d. All of the above are correct.
15. The assumption of a closed economy
a. applies to the world economy.
b. applies to most national economies.
c. requires us to assume that the government’s budget is always balanced.
d. All of the above are correct.
16. Which of the following statements about mutual funds is correct?
a. A mutual fund is a financial intermediary.
b. A mutual fund acquires its funds primarily by selling shares to the public.
c. People who buy shares from a mutual fund accept all of the risk and return associated
with the mutual fund’s portfolio.
d. All of the above are correct.
17. If the reserve ratio is 8 percent, banks do not hold excess reserves, and people do not hold currency, then when the
Fed purchases $20 million of government bonds, bank reserves
a. increase by $20 million and the money supply eventually increases by $250 million.
b. decrease by $20 million and the money supply eventually increases by $250 million.
c. decrease by $20 million and the money supply eventually decreases by $250 million.
d. increase by $20 million and the money supply eventually decreases by $250 million.
18. Educated people may generate ideas that increase production. These ideas
a. could justify government subsides for education.
b. produce a return to society from education that is greater than the return to the
individual.
c. are external benefits of education.
d. All of the above are correct.
19. Frictional unemployment is
a. inevitable, because at any given time, jobs are being created in some firms and destroyed
in other firms.
b. not inevitable; rather, it could be reduced to zero if by the elimination of unemployment
insurance.
c. not inevitable; rather, it can be reduced to zero by well-designed public policies.
d. inevitable, because in some industries, wages are always set above the level that brings
supply and demand into equilibrium.
20. Which of the following would be considered physical capital?
a. bulldozers, backhoes and other construction equipment
b. the available knowledge on how to make semiconductors
c. a taxi-cab driver’s knowledge of the fastest routes to take
d. All of the above are correct.
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21. Which of the following is consistent with the catch-up effect?
a. Although the United States has a relatively high level of output per person, its growth
rate is rather modest compared to some countries.
b. After World War II the United States had lower growth rates than war-ravaged European
countries.
c. The United States had a higher growth rate before 1900 than after.
d. All of the above are correct.
22. Deadweight loss measures the loss
a. in a market to buyers and sellers that is not offset by an increase in government revenue.
b. of total revenue to business firms due to the price wedge caused by the tax.
c. in revenue to the government when buyers choose to buy less of the product because of
the tax.
d. of equality in a market due to government intervention.
Figure 3
23. Refer to Figure 3. Consumer surplus in this market after trade is
a. C.
b. A.
c. A + B + D.
d. A + B.
24. If the reserve ratio is 10 percent, the money multiplier is
a. 100.
b. 9/10.
c. 10.
d. 1/10.
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25. In addition to
a. serving as stores of value, stocks and bonds also serve as media of exchange.
b. serving as financial markets, mutual funds are important in that they help create a store
of value.
c. performing financial intermediation, banks are important in that they help create a
medium of exchange.
d. All of the above are correct.
26. Which of the following equations represents GDP for a closed economy?
a. I = Y - C + G
b. S = I - G
c. Y = C + I + G
d. Y = C + I + G + T
27. Which of the following entities actually executes open-market operations?
a. the Board of Governors
b. the Federal Open Market Committee
c. the New York Federal Reserve Bank
d. the Open Market Committees of the regional Federal Reserve Banks
28. Which of the following statements about GDP is correct?
a. Nominal GDP values production at current prices, whereas real GDP values production
at constant prices.
b. Nominal GDP consistently underestimates the value of production, whereas real GDP
consistently overestimates the value of production.
c. Nominal GDP values production at constant prices, whereas real GDP values production
at current prices.
d. Nominal GDP values production at market prices, whereas real GDP values production
at the cost of the resources used in the production process.
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Figure 4
29. Refer to Figure 4. At the equilibrium wage, how many workers are employed?
a. 9000
b. 5000
c. 1000
d. 0
30. Which of the following terms do we use to mean the same thing as physical capital?
a. capital
b. manual labor
c. factor of production
d. assembly line
31. Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency
and more deposits. As a result, bank reserves will
a. decrease and the money supply will eventually increase.
b. increase and the money supply will eventually increase.
c. decrease and the money supply will eventually decrease.
d. increase and the money supply will eventually decrease.
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Name: ________________________
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Table 1
2003 Labor Data for Adults (age 16 and older) in Meditor
Males not in labor force
Females not in labor force
Males unemployed
Females unemployed
Males employed
Females employed
45 million
35 million
5 million
5 million
85 million
65 million
32. Refer to Table 1. What is the adult female labor force in Meditor?
a. 100 million
b. 40 million
c. 70 million
d. 65 million
33. Suppose the economy is closed and consumption is 6,500, taxes are 1,500, and government purchases are 2,000. If
national saving amounts to 1,000, then what is GDP?
a. 10,000
b. 10,500
c. 9,500
d. None of the above is correct.
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